Alibaba plans equal sway for banks in IPO

TelisDemos

Alibaba Group Holding Ltd. isn't planning to give any of the banks that are leading its initial public offering a substantially bigger role than the others.

Credit Suisse Group AG, Deutsche Bank AG, Goldman Sachs Group Inc., J.P. Morgan Chase & Co. and Morgan Stanley are expected to get equal billing for their jobs as co-lead underwriters of the IPO, according to people familiar with matter.

The Chinese e-commerce company also is considering paying the banks about the same fee, though a final decision hasn't been made and plans may shift, the people said.

With that arrangement, Alibaba would be making a break from recent large Internet IPOs, including those of Facebook Inc. and Twitter Inc., which each paid one bank far more than the others that were named to senior roles.

In the Facebook and Twitter deals, respective lead banks Morgan Stanley and Goldman Sachs received nearly twice the fees of the next tier of underwriters, according to company filings.

Alibaba, whose websites conduct more business than Amazon.com Inc.'s, said in a statement over the weekend that it has started its long-awaited march to an IPO in the U.S. after initially weighing a deal in Hong Kong.

The company picked the banks as co-leads of the planned share sale, The Wall Street Journal reported over the weekend.

The IPO, which could come as soon as this summer, may raise more than $15 billion, making it one of the largest ever in the U.S., people familiar with the matter said.

That could translate into hundreds of millions of dollars in fees and other business to banks and exchanges in the U.S.

Lead banks in IPOs perform multiple tasks, including advising the company on pricing of the shares, acting as liaison with investors, orchestrating the marketing of the deal and overseeing the trading of the stock after it hits the market.

More-junior banks are typically used to solicit investors.

Alibaba plans to list the banks on the initial prospectus in alphabetical order, to reflect their equal status, the people familiar with the matter said. But it isn't clear how Alibaba will split up the specific responsibilities, they said.

Banks have shared equal representation on other large U.S. IPOs, such as those by Visa Inc. and General Motors Co., with some still getting paid much more.

Visa, in its $19.7 billion offering in 2008, named eight banks as lead underwriters, but two of them, J.P. Morgan and Goldman, had additional responsibilities and were paid three times what the next bank got, according to a filing.

In general, however, banks are more often being asked to share credit for deals. This has put pressure on the compensation that any individual bank gets from an IPO, even if overall fee rates--around 7% of proceeds for typical IPOs--have been steady. In 2000, less than 8% of IPOs featured more than one "bookrunner," according to a study by Keating Capital Inc., a fund that invests in pre-IPO companies. But in 2010, 83% of IPOs had multiple bookrunners, the study found.

In addition, big companies have often paid far less than the standard 7% rate for leading IPOs. Of the five largest U.S. IPOs since 2000, none paid more than 2.8%, which was Visa, according to Ipreo, which collects capital-markets data. Facebook paid 1.1%, and General Motors paid 0.75%, Ipreo said.

Even so, with 1% of a potential $15 billion IPO, fees could be $150 million.

There are still other remaining contests on Wall Street tied to the Alibaba deal, such as whether the New York Stock Exchange, owned by IntercontinentalExchange Group Inc., or rival Nasdaq Stock Market, owned by Nasdaq OMX Group Inc., will be the venue where the shares will be listed. Nasdaq snagged, but bungled, Facebook's IPO in 2012, while NYSE had smoother sailing last year with Twitter's.

The banks working on the deal have had past relationships with the company. Credit Suisse and Morgan Stanley, for example, have worked on multiple deals for Alibaba recently, including Alibaba's restructuring of its relationship with Yahoo Inc. and when it has raised other forms of capital. The two banks have been working with the company on its IPO preparation, the people familiar said.

Some of the banks have also featured Alibaba at recent conferences. Credit Suisse hosted Joe Tsai, Alibaba's executive vice chairman and the person tasked with running the IPO, at its December technology conference in Phoenix.

In March, Mr. Tsai was also at Morgan Stanley's technology conference in San Francisco.

Also this month, in March, Mr. Tsai and Jack Ma, Alibaba's founder and executive chairman, were at J.P. Morgan's CEO Summit event in New York, hosted by J.P. Morgan Chief Executive James Dimon and Vice Chairman James B. Lee Jr.

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